January 2021 Hong Kong Office Report (Knight Frank)

Hong Kong Island Grade-A office leasing demand remained soft in December amid weak economic conditions and the traditional offseason, but the overall market was buoyed by the professional sector, particularly the finance and legal service industries, which took up space in premium buildings in the CBD area. Two Chinese Mainland financial companies, the Bank of Dongguan and FountainVest Partners, leased an entire floor in Two IFC, which was previously occupied by Nomura Holdings. Medical companies also expanded their footprint in the core districts. A medical centre leased the entire top floor of 9 Queen’s Road Central to meet the increasing demand for healthcare and wellbeing. Given the weak economic situation, some tenants gave up more office space. With the current high vacancy rate of 7.8% on Hong Kong Island, we expect some landlords to soften their approach and be more willing to negotiate.

Kowloon Leasing activity in Kowloon continued to slow down in December. New lease transactions dropped by 20% on a monthly basis. Most of the leasing activity was in Kowloon East, at monthly rents below HK$25 per sq ft. While most industries have been largely affected by the COVID-19 pandemic, the logistics industry has remained strong and is one of the winners. Some logistics companies have taken advantage of this golden opportunity in the downbeat market to expand and upgrade their work environment and location. A recent notable example was the relocation of logistics giant DHL. It moved out of Megabox and took up a 91,015 sq ft space in the premium Grade A office International Trade Tower in Kwun Tong, making it the largest new lease acquisition in the market so far in 2020.After reviewing its office requirements, DHL chose to reconfigure its work pattern and adopt agile work practices to achieve workplace size optimisation. Curtailed by the pandemic and economic uncertainty, tenants will continue to be cost-sensitive and seek cost-effective options in Kowloon. Given the approach of the traditional festive season and the continuing unstable COVID-19 situation, we expect leasing demand to remain soft and the current low-level leasing volume to last until at least Lunar New Year.